"How a Visionary Venture on the Web Unraveled" from
the Los Angeles
Times, May 7, 2000. © 2000 Los
Angeles Times. Reprinted with permission.
May 7, 2000
How a Visionary Venture on the Web Unraveled
* Start-up firm's white-hot bid to redefine entertainment turned
into a cautionary tale amid financial excesses and a sexual abuse
lawsuit. Site relaunch is planned.
Home Edition, Part A, Page A-1
By JOSEPH MENN and GREG MILLER, TIMES STAFF WRITERS
"The boob tube zombie television is dead. . . . Global entertainment
will be delivered over the Internet. . . . Digital Entertainment
Network will create the last network."
These were the visions of a Santa Monica company known as DEN,
spelled out in a fiery 38-page manifesto written two years ago
by its founder. And for a while, the venture was white-hot, pioneering
the fusion of Hollywood and the Silicon Valley.
Executives from Disney and other major companies flocked to
join the company. Digital Entertainment Network hired Hollywood
directors and actors to create original programs for its Web site.
Advertisers including Ford and Pepsi eagerly plastered their logos
on the DEN.net home page, and industry giants such as Microsoft
invested millions of dollars.
But after two years of trying to build an audience for TV-style
entertainment over the Internet, DEN has yet to produce a program
as compelling as the unraveling of the company itself.
Beset by business blunders and allegations of sexual misconduct
against its founder, the company squandered an opportunity to
define the intersection of California's two premier industries.
Instead, as a rival executive said in a recent interview, "they
have become poster boys for what not to do."
The founder, Marc Collins-Rector, was forced to leave the company
after a lawsuit accused him of molesting a teenage boy, a charge
he denies. A planned stock offering that could have netted him
and his executives hundreds of millions of dollars was abandoned.
More than a third of the company's 300 employees were recently
laid off and sources say the company is scrambling to find new
Production of shows has been halted, and the vast audience that
DEN's founders promised is now so tiny it doesn't even register
with top Internet ratings services.
The implosion raises questions about how carefully some of the
most powerful backers of the Internet economy scrutinize the companies
they support. Most seemed oblivious to flaws in the Digital Entertainment
business model and the exorbitant salaries its executives were
paying themselves. Investors also knew little about Collins-Rector,
the entertainment novice they entrusted with their money.
"It is one of the leading cautionary tales that come up
in Internet conversations," said an executive at another
online entertainment company. "It comes up in terms of overpaying
executives, oversetting expectations, burning too bright too soon."
Ken Andersen, managing editor of the VentureWire electronic newsletter
in New York, added: DEN shows that "anybody can raise a million
dollars in dumb money."
Collins-Rector declined to be interviewed. His attorney, Ronald
Palmieri, denied that his client has done anything wrong.
Hoping to salvage some of the company's promise, a revamped executive
team, led by former Capitol Records President Gary Gersh and former
Microsoft executive Greg Carpenter, is planning a relaunch of
the site this month. They say the new DEN will be larger but leaner,
still offering TV-style programs, but also music, news, chat and
other content aimed at a college audience. They are also being
careful to steer clear of their predecessors' bombast.
"DEN was slated to be big, to be huge, to take over,"
said Gersh, a company executive and director since last May. "We
were going to change the world and we were going to get rich quick.
All we're trying to do now is tell people there's no substitute
for rolling up your sleeves and going to work."
Saw Potential of New Technology
The convergence of entertainment and technology only now seems
at hand, after years of false starts. In the early 1990s, Hollywood
and high-tech firms lost millions on bets that viewers were ready
to leave their television sets to click through interactive entertainment
Later, as the Internet began to bloom, early episodic shows such
as the online soap opera "The Spot" generated curiosity
but not much revenue.
But what seemed farfetched after those failures now appears inevitable.
Many teenagers now get the bulk of their music online, and many
Hollywood and high-tech executives believe that consumers will
soon get much, if not most, of their entertainment via the Net.
So far, only about 2% of U.S. households have the high-speed
Internet connections necessary to stream video smoothly. And even
then, the images appear in a box about the size of a postcard.
But analysts expect those technological barriers to crumble over
the next five years. Already, they estimate that 7 million college
students have high-speed access in their dorms or elsewhere on
campus, and 15 million adults have such access in the workplace.
Collins-Rector saw the potential of this booming technology earlier
than most. He lined up major investors, grabbed key advertisers,
and his company was the first entertainment site to file for an
initial public stock offering, positioning executives for the
kinds of Internet riches that Hollywood moguls have come to envy.
DEN had a full slate of MTV-style programming online before many
of its rivals were even a flicker on someone's computer screen.
Users who downloaded a small piece of software known as the Denabler
could watch shows that were streamed over the Net, meaning they
flowed across the computer network as tiny packets of data. The
offerings included a series set in a fraternity house and a drama
geared toward Christian teenagers.
Setting Sights on 'Generation Y'
Collins-Rector was the main creative force. A 40-year-old technology
guru with no entertainment experience, his background was murky
even to the top executives he hired. But he did have tens of millions
of dollars and a certain amount of tech industry cachet from an
earlier company he had founded called Concentric Research.
His two DEN co-founders were Chad Shackley, then 24, who had
lived with Collins-Rector since dropping out of a Michigan high
school, and Brock Pierce, then a 17-year-old actor best known
for his leading roles in such Disney films as "The Mighty
Ducks" and "First Kid."
All three lived in a 12,616-square-foot mansion in Encino, drove
a Ferrari and a Lamborghini, wore Armani suits, took spur-of-the-moment
vacations to the tropics and threw parties that attracted a young,
hip crowd that also defined DEN's target audience.
In his manifesto, crafted to energize early employees, Collins-Rector
set his sights on segments of so-called Generation Y that he said
were being ignored by mainstream television and movies. He identified
punk rockers, extreme skaters and "hip-hoppers," and
put gay teenagers at the top of the list. The company would build
a huge market by "globalcasting to a narrowcast audience,"
Work began in 1998 on its first show, "Chad's World."
Produced by the teenage Pierce, the show centered on a 15-year-old
from Michigan who questions his sexual orientation and ultimately
flees his town's intolerance to move in with a gay couple in a
For early financing, majority owner and chairman Collins-Rector
turned to high-profile individuals he had come to know in Hollywood,
including television actor Fred Savage. Former U.S. Rep. Michael
Huffington said he invested $5 million.
Huffington later complained that he was led to believe major
companies were investing at the same time he was, and on the same
terms--which wasn't true. He also said Collins-Rector traded on
his name, describing Huffington as vice chairman although he held
no such position.
Soon Collins-Rector was jetting across the country for meetings
with much bigger players in the worlds of technology and venture
He was smooth in pitch meetings, using a laptop computer to show
investors how DEN would transform not only Internet entertainment,
but also advertising and e-commerce. One CD-ROM demonstration
showed how users would be able to stop a show in freeze frame,
then click on an actor's shirt to buy one like it. The technology
never appeared on the actual Web site, but investors were impressed
By June 1999, DEN had raised $33.5 million from major backers
of new ventures, including Cassandra Chase Entertainment Partners,
Chase Capital Partners, Dell, Microsoft and Exodus Communications.
The companies declined to discuss with The Times their decisions
to invest in Digital Entertainment Network.
DEN's outside directors included Mitchell Blutt, executive partner
of Chase Capital, the $8-billion investment fund of Chase Manhattan
Corp., and former A & M Records President Gilbert Friesen,
president of the board of trustees of the Los Angeles Museum of
Contemporary Art. They also declined to be interviewed.
Business associates and employees said they, like the financial
backers, were drawn to Collins-Rector's creativity and confidence.
"The guy is smart, affable and had a vision," said
current Digital Entertainment Network Chief Executive Carpenter.
"A lot of his vision panned out."
Background a Mystery to Many
But even to Carpenter and others close to him, Collins-Rector's
background was a blur. Dozens of employees, business associates
and social acquaintances said they didn't know--or offered conflicting
accounts of--where he had grown up, where he had gone to school,
and what he had done before DEN.
Collins-Rector often claimed to be in his late 20s, and associates
and employees said he gave the impression he had been a computer
student at UCLA. But company filings show that he is 40, and officials
at UCLA say there is no record that he was ever a student there.
According to records in Los Angeles Superior Court, he changed
his name in 1998 from Mark Rector to Marc Collins-Rector.
His early business partners describe him as smart and personable,
but a man whose ideas were too far out in front of what was possible.
Nearly 20 years ago, he was the brains behind a short-lived telecommunications
company in Florida called Telequest. Laura Brandeis, one of the
original investors in the company, described Collins-Rector as
"a genius" but also "too much into instant aggrandizement,"
once demanding that the fledgling company buy him a sports car.
In 1984, Collins-Rector and an Orange County businessman named
Stephen Fryer founded an Irvine-based company called World TravelNet
that electronically coordinated tours and cruises. Its affiliate,
World ComNet, sold shares on the Vancouver stock exchange in 1987.
The value of the company peaked at about $100 million before it
ran into sharp competition from the airline industry and eventually
filed for bankruptcy.
"It was so close," Fryer said. "We just ran out
In 1991, Collins-Rector rebounded by launching Concentric Research
in Bay City, Mich. The company was like an early Internet service
provider, enabling computer users to avoid long-distance charges
when dialing into electronic bulletin boards.
The company's setup reflected Collins-Rector's ingenuity. Needing
local telephone access numbers, but spurned by regional phone
companies, he built a nationwide network by installing phone equipment
in rented space in Payless Shoe Store locations around the country.
Concentric tapped a growing market. Bulletin boards, essentially
pre-Web chat rooms, once numbered in the thousands, offering computer
users the chance to find others with common interests, and to
trade messages on almost any topic.
Collins-Rector had become a devotee of bulletin boards, which
he apparently used to strike up relationships with at least two
teenage boys, including his Concentric co-founder, Shackley, a
high school student in Bay City. After meeting online, according
to associates, their relationship flourished and Collins-Rector
decided to base Concentric in Bay City and bring Shackley, then
16, into the company.
Shackley's parents, who declined to be interviewed, were initially
supportive of their son's involvement with the business. Shackley's
father, a real estate developer, even helped set up the company
in one of his buildings, according to an account Collins-Rector
posted on the company's Web site.
But according to a family friend, Shackley's parents were dismayed
when their son informed them that he was dropping out of high
school and leaving home to move in with Collins-Rector. The two
have been professional and personal partners ever since, according
to Collins-Rector's attorney, Palmieri.
Even so, Collins-Rector continued to spend time on bulletin boards,
including one at which he met a 13-year-old boy from New Jersey.
The boy, now 20, says that Collins-Rector, using the screen name
"Cyberpoet," offered him part-time work handling customer
complaints at Concentric and flew him to Michigan and California
By 1995, Concentric was still relatively small, with 25 employees
and $1 million in revenue. But its rapid growth attracted attention
from Silicon Valley. That year, Collins-Rector and Shackley sold
control to a group that included the top-drawer venture capital
firm of Kleiner Perkins Caufield & Byers.
The two men pocketed millions and kept some stock in the company.
Renamed Concentric Networks, the firm went on to become even more
valuable, and this year agreed to be acquired by Nextlink Communications
for $2.9 billion.
The windfall enabled Collins-Rector and Shackley to pursue a
lavish new lifestyle. They bought an enormous RV and traveled
the country scouting living locations, settling briefly in Beverly
Hills before paying $2.47 million in 1997 for a mansion in Encino.
They called it the "M & C Estate," for Marc and
Chad. The 1 1/2-acre property, which includes a swimming pool,
aquariums and a movie screening room, became a stage not only
for elaborate parties, but for DEN. It was initially the base
for the company and provided the filming location for a number
of DEN shows, including "Chad's World."
High Salaries for Executives
The extravagance at the M & C Estate spilled over into the
company, which burned through cash at a rate that was alarming
even by Internet start-up standards.
Once it had secured cash from investors, Digital Entertainment
set out to assemble a high-profile management team. But instead
of tying compensation primarily to stock options--as most Internet
companies do to control costs--DEN immediately offered high cash
salaries and bonuses.
According to a company filing with the SEC last fall, David Neuman,
recruited from Disney to become DEN's president, was paid an annual
salary of $1.5 million. Gersh and John Silva, music industry executives
brought in to start a record label, were each paid $600,000. The
company's head of marketing was paid $1 million and its chief
financial officer $400,000.
Even Brock Pierce, then 18, was paid $250,000, more than most
full-fledged Internet chief executives earn. Pierce and Shackley
both took executive vice president titles.
The company was also spending heavily to build its roster of
shows. DEN hired Randal Kleiser, who had directed such films as
"Grease" and "The Blue Lagoon," to create
a science fiction series called "The Royal Standard."
Actress and author Carrie Fisher was hired to write an online
advice column called "Denmother."
By last fall, DEN was in production on 13 shows and planning
All told, through the first six months of 1999, the company hadn't
recorded a dime in revenue and reported a loss of $20 million,
including $12 million in salaries and "programming costs."
Losing money is hardly unusual for Internet start-ups. But while
most spend the bulk of their money on marketing and scrimp on
salaries and content, DEN was doing the opposite.
"We were trying to bring in significant marketing and Hollywood-oriented
talent," said James Ritts, who was DEN's chief executive
through much of last year. "Investors came into the company
knowing the salary structure and, at least at that time, found
But some employees said there was more focus on money than on
the company's direction. "I went into DEN thinking this is
going to be something great, it's going to change things,"
said one early hire, former production manager Jeff Moore.
Moore said top people spent a lot of time talking about how much
money was being invested in the venture and how much they stood
to benefit when the company offered stock for sale. "After
a while, it seemed like the executives were only about, 'How can
we make a buck?' "
Even Gersh, the new chairman, acknowledges there was an unhealthy
preoccupation with the IPO. "Everybody was really focused
on taking the company public," he said. "The day you
go public [should] be the beginning of the game. It always seemed
like the end of the game."
Some DEN employees also became concerned about what they saw
as an uncomfortable overlap between Collins-Rector's personal
life and the company he controlled.
Collins-Rector set up those closest to him with plush jobs at
the company, and his justifications for the moves often seemed
strained. He credited Pierce, for example, with coming up with
a way to speed video transmission on the Net.
"Microsoft spent $800 million trying to [solve the problem],"
Collins-Rector wrote in his vision statement. "Brock looks
at the problem and goes, 'Oh, it's simple.' "
According to several former DEN executives, the inspiration was
simple indeed: It was to move the camera as little as possible,
so computers would have fewer image changes to process. (Palmieri,
the attorney for Collins-Rector, said Pierce's "contributions
to the company were enormous. I have been in meetings with him,
and he's contributed substantially.")
One former supervisor said Collins-Rector directed him to hire
certain teenagers who weren't qualified for the jobs they sought.
"He would come to me with ultimatums on who I should hire,"
said the former manager, who spoke on condition of anonymity.
"Young hip kids were his thing."
Some workers said they felt compelled to do things well outside
their job descriptions. One young employee said he was told that
"if he valued his job" he would travel with Collins-Rector
and his young executives, Shackley and Pierce, on a vacation to
a tropical resort last spring.
The employee complained to his supervisor, who confirmed the
account to The Times, but who said he didn't report the matter
to top executives because they worked for Collins-Rector. The
teenager said that he felt compelled to make the trip and that
Shackley made a sexual pass at him. After he rejected the proposition,
the teenager said, the trip ended early.
Attorney Calls Allegations False
Favored employees were also invited to parties at the Encino
mansion, and several said they were encouraged to spend the night
Palmieri, also the attorney for the other two co-founders, said
such allegations are false, and that "nothing was going on
that was improper." Regarding the accusation that an employee
was pressured to take a trip with the founders, Palmieri said
Shackley denies the allegation and "has no idea what this
could be referring to."
Palmieri also points out that no DEN employee has filed a suit
or lodged a formal complaint within the company accusing DEN's
founders of sexual harassment or any other misconduct.
Company executives, including Gersh, Carpenter and Neuman, as
well as board members, said they were unaware of any improper
behavior by Collins-Rector and regarded his personal life as beyond
their scope of concern. "Who people date," said Marc
Nathanson, a DEN director and former Falcon Cable chief executive,
"is none of the board's business."
The board was soon forced to take notice.
Last September, the company filed documents with the Securities
and Exchange Commission proposing to raise $75 million in a public
stock offering. But two days earlier, Collins-Rector was served
with a lawsuit filed by the New Jersey boy he had hired as a 13-year-old
customer service employee at Concentric in the early 1990s.
The suit, filed last May in U.S. District Court in Trenton, N.J.,
accused Collins-Rector of using his position of influence to sexually
abuse the boy repeatedly from 1993 to 1996. In one instance, the
suit alleged, the boy was flown to Bay City for a work assignment
and invited to stay in Collins-Rector's home. That evening, according
to the suit, Collins-Rector entered the boy's room and "moved
his hand down [the boy's] chest, repeating the question, 'Do you
trust me?' "
The suit alleged that sexual encounters continued after Collins-Rector
had sold his controlling stake in Concentric, moved to California,
and founded Digital Entertainment Network. The age of consent
in California is 18.
At first, Collins-Rector denied the allegations and indicated
he would fight the suit. That strategy collapsed after the emergence
of a tape recording of a phone conversation between Collins-Rector
and the boy, according to a source familiar with the case.
Palmieri denies the existence of any such tape. He said that
in his first meeting with the boy's attorney, he demanded, "
'If there is a smoking gun, let me see it.' There was no such
The FBI also began a criminal investigation, according to two
sources with knowledge of the probe. The investigation is continuing,
sources said, and the FBI refused to comment. Palmieri said that
he is unaware of such an investigation, and that neither he nor
his client has been approached by the FBI or any law enforcement
Collins-Rector agreed in mid-October to settle the suit, paying
the plaintiff, now 20, an undisclosed sum but admitting no guilt.
Palmieri characterized the suit as "classic IPO blackmail,"
and said Collins-Rector agreed to settle only to minimize publicity
and damage to DEN.
Collins-Rector's stake in the IPO "would have been worth
hundreds of millions of dollars," Palmieri said. "Any
business attorney or litigator would immediately consider giving
a token payment [to the plaintiff] to save the company and his
After the settlement, Collins-Rector, Shackley and Pierce left
the company. Palmieri said the three had been planning to leave
for some time, eager to pursue new technology ventures. The suit
was "a factor" in their decision to leave, Palmieri
said, "but not the catalyst."
But Ritts, who replaced Collins-Rector as chairman, said the
founder had been asked by the board to leave because, as he put
it, "the allegations related to an area that was philosophically
inconsistent with a company that was aimed at 14- to 24-year-olds."
Hopes Dashed for 1999 IPO
Inside DEN, the impact of the lawsuit was devastating. It dashed
hopes for the public offering of stock and "stopped the company
dead in its tracks," said one senior DEN employee. The allegations
soured an atmosphere that had been "exciting and fun in which
everybody felt lucky to be here," he said.
Current DEN executives said the suit caught them completely off-guard.
Gersh said he never saw "anything that would lead me to believe
[Collins-Rector] was propositioning anybody."
At a time when the stock market was minting millionaires at one
dot-com after another, employees saw their prospects for IPO riches
evaporating. DEN still had about $18 million on hand as of last
June 30, but the company was burning through more than $3 million
a month and had yet to report any revenue.
Meanwhile, other online entertainment sites were building larger
audiences with leaner business models. Its momentum sapped, Digital
Entertainment Network withdrew its IPO and undertook a major retrenchment
in February. It also announced the resignation of Ritts, who acknowledged
that he didn't act swiftly enough to pare DEN's costs.
Gersh, the onetime record executive, was named chairman. Carpenter
was promoted from chief technology officer to chief executive.
Investors, including Intel Corp. and Chase Capital Partners, contributed
$24 million in new funding.
Gersh fired more than 100 workers, closed one of DEN's offices
in Santa Monica, and halted production of new shows. Gersh and
Carpenter also capped executive salaries at $200,000 per year,
although Gersh said one "key" DEN employee continues
to make about $350,000 a year because of a contractual agreement.
Having cut the burn rate by more than half, Gersh and other executives
began to rebuild the Web site around five "channels":
music, sports, entertainment, previous shows and a college life
category called "The Quad."
For "The Quad," DEN is soliciting drink recipes and
spring break photos from students. For the sports channel, the
site is filming 360-degree virtual tours of skateboard parks.
And for the entertainment channel, DEN is relying on deals with
other Web sites and production houses, instead of creating shows
Carpenter said DEN expects to collect more than $7 million this
year in advertising revenue--excluding barter arrangements--from
Pennzoil, Ford, Blockbuster, Microsoft, Dell and Pepsi. Still,
its audience in March was too small to register with Media Metrix,
meaning it had fewer than the minimum 250,000 visitors necessary
to be tracked. By contrast, Shockwave.com, a popular source of
games, animation and software for teenagers, attracted 4 million
Industry sources say DEN has been pursuing new financing and
exploring a sale of the company to one of many emerging rivals,
without any takers. But the mood at DEN seems to have recovered.
On a recent weekday afternoon, DEN's cavernous brick headquarters
hummed with the caffeinated energy of any Internet start-up. Employees
scurried across the bare concrete floor and huddled over computer
screens in the ongoing rush for the relaunch.
"The mood is hopeful now," said one DEN employee, who
spoke on condition of anonymity. "I think we've been through
a lot. We're all back in one building now, trying our best to
make this work."
One of the few artifacts from the previous era is a defaced photo
of Collins-Rector hanging in a computer room. Someone has scrawled
a mustache across his face in black ink, and the words, "Our
former fearless leader."
Collins-Rector's stake in DEN has dwindled to less than 20%,
according to his attorney, and executives say he has no influence
Collins-Rector, Shackley and Pierce recently returned to their
Southern California mansion and incorporated a new company, World
Wide Technology & Internet Ventures Ltd., in the British Virgin
Among the new names at the company is an 18-year-old ex-DEN actor,
Alex Burton, who lives at the mansion and is a childhood friend
of Brock Pierce. Burton's mother, Elizabeth Anderson, recently
contacted a Times reporter saying she was concerned about her
son, and that he doesn't return her calls.
Reached by phone at the mansion, Burton said there was no reason
for anyone to worry, but declined to speak further.
Palmieri, the attorney, said Collins-Rector had nothing to do
with bringing Burton into the company. "It does sound like
a pattern, but it's not Mr. Collins-Rector who has done this,"
Palmieri said. "For appearances only, I said, 'Why not have
everyone leave?' and he said, 'Why should I change my life? I'm
not doing anything wrong.' "
Times staff writer Sallie Hofmeister and researchers John Jackson
and Sheila A. Kern contributed to this story.
Digital Entertainment Network is among the entertainment sites
are proliferating on the Net. Most target teen and young adult
audiences. Below are some of the prominent players:
Digital Entertainment Network Inc.
Content: Videos, music, news
HQ: Santa Monica
Key executives: Chairman Gary Gersh, Chief Executive Greg Carpenter
Target audience: Teens, young adults
Funding: More than $60 million from investors including Microsoft
Corp., Cassandra Chase Entertainment Partners and former U.S.
Rep. Michael Huffington
Content: Short films, animations
Fact: Has rights to USC films, including early works by George
Content: Short videos, cartoons, music, news
Fact: Warner Bros.' online play
HQ: Los Angeles
Content: Short films, animations
Fact: Operates IfilmPro site for film professionals
HQ: Venice, Calif.
Content: Videos, music, news, cartoons, games
Fact: CEO from Paramount Pictures
HQ: San Francisco
Content: Animated shorts, music, games
Fact: Has deals with director Tim Burton, creators of South Park
Content: Short videos, animations
Fact: Founders include Steven Spielberg
*has not officially launched
Source: Web sites; Times research
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